PHILADELPHIA, Aug. 23, 2016 /PRNewswire/ -- Lannett Company, Inc. (NYSE: LCI) today reported financial results for its fiscal 2016 fourth quarter and full year ended June 30, 2016. As previously announced, the company completed the acquisition of Kremers Urban Pharmaceuticals Inc. (KU) on November 25, 2015. Accordingly, fiscal 2016 fourth-quarter and full-year financial results include the operations of KU since the acquisition date.

"Our record net sales for the fourth quarter were driven by the addition of KU's operations and higher sales of key products," said Arthur Bedrosian, chief executive officer of Lannett. "Today's announcement builds upon our recent positive momentum and caps a number of significant successes over the last six months. These achievements include refinancing a sizable portion of debt that will result in savings of approximately $170 million in cash interest over the life of the loans, expanding and advancing our robust pipeline, receiving a number of product approvals and making solid progress on our cost reduction program. All of which, combined with our increased size and scale resulting from our acquisition strategy, gives us great confidence in Lannett's future."

For the fiscal 2016 fourth quarter, total net sales increased 70% to $168.9 million from $99.3 million for the fourth quarter of fiscal 2015. Gross profit was $79.9 million compared with $72.0 million. Gross profit as a percentage of net sales was 47% compared with 72% in last year's fourth quarter, primarily due to the inclusion of KU's lower-margin business, as well as amortization of acquired intangible assets and other purchase accounting related expenses. Research and development (R&D) expenses increased to $13.0 million from $7.0 million for the fiscal 2015 fourth quarter. Selling, general and administrative (SG&A) expenses were $22.0 million compared with $12.3 million. Acquisition and integration-related expenses were $4.2 million compared with $1.7 million in the prior-year fourth quarter. In the fourth quarter of fiscal 2016, the company recorded restructuring expenses of $2.4 million related to a cost reduction plan implemented in February 2016 and an impairment charge of $8.0 million related to acquired intangible assets. Operating income was $30.4 million compared with $51.0 million. The company recorded an income tax benefit of $2.9 million in the fourth quarter of fiscal 2016 versus income tax expense of $17.2 million in the prior-year period. Interest expense was $27.1 million compared with $88 thousand for the fourth quarter of fiscal 2015. Net income attributable to Lannett was $3.6 million, or $0.10 per diluted share, compared to net income attributable to Lannett of $33.9 million, or $0.91 per diluted share, for the fiscal 2015 fourth quarter.

For the fiscal 2016 fourth quarter reported on a Non-GAAP basis, adjusted total net sales increased to $168.9 million from $99.3 million for the fourth quarter of fiscal 2015. Adjusted gross profit was $91.9 million, or 54% of adjusted total net sales, compared with $72.2 million, or 73% of adjusted total net sales, for the fiscal 2015 fourth quarter. Adjusted R&D expenses increased to $13.1 million from $7.0 million. Adjusted SG&A expenses were $17.8 million compared with $12.3 million. Adjusted operating income increased to $61.0 million from $52.9 million for the prior-year fourth quarter. Adjusted net income attributable to Lannett was $27.5 million, or $0.73 per diluted share, compared with $35.2 million, or $0.94 per diluted share, for the fiscal 2015 fourth quarter.

For the 2016 fiscal year, total net sales were $542.5 million compared with $406.8 million for fiscal 2015. Fiscal 2016 total net sales were reduced by a previously announced, pre-tax, non-recurring settlement agreement of $23.6 million, which was recorded as a reduction to net sales during the fiscal 2016 third quarter. Gross profit was $286.5 million compared with $306.4 million. Gross profit as a percentage of net sales was 53% compared with 75% for fiscal 2015, primarily due to the inclusion of KU's lower-margin business, as well as amortization of acquired intangible assets and other purchase accounting related expenses. R&D expenses increased to $45.1 million from $30.3 million for fiscal 2015. SG&A expenses were $68.3 million compared with $45.2 million. Acquisition and integration-related expenses were $27.2 million compared with $4.3 million in the prior year. Fiscal 2016 included restructuring expenses of $7.2 million and the impairment charge of $8.0 million. Operating income was $130.8 million compared with $226.5 million. Interest expense was $65.9 million compared with $207 thousand for fiscal 2015. Net income attributable to Lannett was $44.8 million, or $1.20 per diluted share, compared with $149.9 million, or $4.04 per diluted share, for fiscal 2015.

For the fiscal 2016 full year reported on a Non-GAAP basis, adjusted total net sales increased to $566.1 million from $406.8 million for fiscal 2015. Adjusted gross profit was $348.1 million, or 61% of adjusted total net sales, compared with $306.6 million, or 75% of adjusted total net sales, for fiscal 2015. Adjusted R&D expenses increased to $45.1 million from $30.3 million. Adjusted SG&A expenses were $59.0 million compared with $45.2 million. Adjusted operating income increased to $244.0 million from $231.1 million for the prior year. Adjusted net income attributable to Lannett was $127.8 million, or $3.42 per diluted share, compared with $153.0 million, or $4.12 per diluted share, for fiscal 2015.

Guidance for Fiscal 2017Based on its current outlook the company provided financial guidance for the 2017 fiscal year as follows:

GAAP

Adjusted

Net sales

$690 million to $700 million

$690 million to $700 million

Gross margin %

50% to 51%

55% to 56%

R&D expense

$49 million to $51 million

$49 million to $51 million

SG&A expense

$68 million to $70 million

$67 million to $69 million

Acquisition related, integration and restructuring expense

$10 million to $11 million

$0

Interest expense

$93 million to $94 million

$71 million to $72 million

Effective tax rate

Approximately 34%

Approximately 34%

Capital expenditures

$55 million to $65 million

$55 million to $65 million

Conference Call Information and Forward-Looking StatementsLater today, the company will host a conference call at 4:30 p.m. ET to review its results of operations for the fiscal 2016 fourth quarter and full year ended June 30, 2016. The conference call will be available to interested parties by dialing 888-771-4371 from the U.S. or Canada, or 847-585-4405 from international locations, passcode 43115576. The call will be broadcast via the Internet at www.lannett.com. Listeners are encouraged to visit the website at least 10 minutes prior to the start of the scheduled presentation to register, download and install any necessary audio software. A playback of the call will be archived and accessible on the same website for at least three months.

Discussion during the conference call may include forward-looking statements regarding such topics as, but not limited to, the company's financial status and performance, regulatory and operational developments, and any comments the company may make about its future plans or prospects in response to questions from participants on the conference call.

Use of Non-GAAP Financial MeasuresThis news release contains references to Non-GAAP financial measures, including Adjusted net income attributable to the Company, and its components, as well as Adjusted earnings per diluted share, which are financial measures that are not prepared in conformity with United States generally accepted accounting principles (U.S. GAAP). Management uses these measures internally for evaluating its operating performance. The Company's management believes that the presentation of Non-GAAP financial measures provides useful supplementary information regarding operational performance, because it enhances an investor's overall understanding of the financial results for the Company's core business. Additionally, it provides a basis for the comparison of the financial results for the Company's core business between current, past and future periods. Non-GAAP financial measures should be considered only as a supplement to, and not as a substitute for or as a superior measure to, financial measures prepared in accordance with U.S. GAAP. Detailed reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included with this release.

Adjusted net income and Adjusted earnings per diluted share exclude, among others, the effects of (1) the amortization of purchased intangibles, (2) acquisition and integration-related expenses and other purchase accounting entries, (3) non-cash interest expense, as well as (4) certain other items considered unusual or non-recurring in nature.

About Lannett Company, Inc.:Lannett Company, founded in 1942, develops, manufactures, packages, markets and distributes generic pharmaceutical products for a wide range of medical indications – see financial schedule below for net sales by medical indication. For more information, visit the company's website at www.lannett.com.

This news release contains certain statements of a forward-looking nature relating to future events or future business performance. Any such statements, including, but not limited to, realizing the expected benefits of optimizing operations, enhancing efficiencies, significantly reducing costs, expanding the pipeline, commercializing product approvals or refinancing the debt including the cash interest cost savings, and achieving the financial metrics stated in the company's guidance for fiscal 2017, whether expressed or implied, are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated due to a number of factors which include, but are not limited to, the difficulty in predicting the timing or outcome of FDA or other regulatory approvals or actions, the ability to successfully commercialize products upon approval, including acquired products, and Lannett's estimated or anticipated future financial results, future inventory levels, future competition or pricing, future levels of operating expenses, product development efforts or performance, and other risk factors discussed in the company's Form 10-K and other documents filed with the Securities and Exchange Commission from time to time. These forward-looking statements represent the company's judgment as of the date of this news release. The company disclaims any intent or obligation to update these forward-looking statements.

(a) To exclude amortization of a fair value step-up in inventory and depreciation of a fair value step-up in property, plant and equipment related to the acquisitions of Kremers Urban Pharmaceuticals, Inc. and Silarx Pharmaceuticals, Inc.

(c) To exclude fees related to the refinancing of the 12.0% Senior Notes, separation expenses associated with a former executive officer and amortization of purchased intangibles related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(a) To exclude expense related to a settlement agreement with a former customer

(b) To exclude amortization of a fair value step-up in inventory related to the acquisitions of Kremers Urban Pharmaceutical, Inc. and Silarx Pharmaceuticals, Inc. as well as depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(d) To exclude separation expenses associated with former executive officers, fees related to the refinancing of the 12.0% Senior Notes as well as amortization of purchased intangibles related to the acquisition of Kremers Urban Pharmaceuticals, Inc.

(g) To exclude an impairment charge related to certain intangible assets acquired as part of the Kremers Urban Pharmaceuticals Inc. acquisition

(h) To exclude non-cash interest expense primarily associated with debt issuance costs and a loss from extinguishment of debt

(i) The tax effect of the pre-tax adjustments included above at applicable tax rates

LANNETT COMPANY, INC.

RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED INFORMATION (UNAUDITED)

($ in millions)

Fiscal Year 2017 Guidance

Non-GAAP

GAAP

Adjustments

Adjusted

Net sales

$690 - $700

-

$690 - $700

Gross margin percentage

50% - 51%

5%

(a)

55% to 56%

R&D expense

$49 - $51

-

$49 - $51

SG&A expense

$68 - $70

($1)

(b)

$67 - $69

Integration and Restructuring expense

$10 - $11

($10 - $11)

(c)

-

Interest expense

$93 - $94

($22)

(d)

$71 - $72

Effective tax rate

approx. 34%

-

approx. 34%

Capital expenditures

$55 - $65

-

$55 - $65

(a) The adjustment primarily reflects amortization of purchased intangible assets, amortization of a fair value step-up in inventory and depreciation of a fair value step-up in property, plant and equipment related to the acquisition of Kremers Urban Pharmaceuticals, Inc.